Health Tech Marketing Budget
While few specific budgets or budget allocations could be located specifically for healthtech startups, there are common insights that apply to all startups’ budgets. These include estimating standard startup and first-year costs, including development of the product and opening of the corporate office (if there is one), as well as building cash flow projections through at least the first year. Making sure the legal and regulatory sides are handled properly is also key, as is entering the market with a marketing bang.
Common Startup Costs Differ Depending on the Business & Product Type
- The Small Business Administration outlines the basic costs that can be expected by most startups, though these will vary depending on whether the company will be a brick-n-mortar company, an online-only company, or a service company. General expenses to account for include (but are not limited to): office space, equipment and supplies, communications, utilities, licenses and permits, insurance, lawyer and accountant, inventory, employee salaries, advertising and marketing, website costs, and market materials (print, email, digital, etc). If the product is a physical product (rather than a digital one), expenses also will include development and inventory costs.
- Once this list is created – in detail (drilled down to the components within each category), estimating how much is needed for each category is next. While some expenses – like permits or licenses, as examples – have fixed costs, other categories – like employee salaries or marketing costs – are more fluid and will depend on what expenditures are made (or people are hired).
- Once the estimates have been added, identify how much capital is needed per month to maintain (and grow) the business – and shoot toward that goal (or higher!). Experts note the importance of setting money aside for unexpected expenditures, which can often arise during the course of a startup’s launch.
Expect Startup Costs to Average $30 K
- Research from the Kauffman Foundation shows the average cost for getting most startups up and running is around $30,000, though this can be cheaper for some companies (and more expensive for others, depending on product type, company type, and other factors). In calculating these costs (as noted in the first subsection of this report), experts at Fundera recommend setting aside at least six months’ worth of expenses from the outset (before launch).
- Estimated costs for office space vary depending on how much space is needed; a good rule of thumb is to calculate $100 - $1000 each month for office space per employee. Setting up the office with desks, supplies, a break room, and other office areas should run no more than about 10% of the total budget costs. If product inventory is necessary, estimates should be within the range of 17% - 25% of the total budget.
- Estimated costs for technology and other equipment could run anywhere from $10,000 - $125,000 (or more), depending on the number of employees. Payroll will cost the company between 25 – 50% of the total budget, with another $1000 - $5000 each year tacked on for professional consultants.
- Additional costs to consider (and save for) include office space utilities and services (“about $2 per square foot of total office space”), insurance averages about $1200 each year (again, depending on size and type of company), and taxes should be estimated at a 21% flat corporate rate.
App Development Can Be Costly
- If the product being developed is a mobile app, then development costs must also be included in the launch and first-year budgets. 2018 data from Research2Guidance estimates that the average mobile health app costs about $425,000 to develop, “with nearly half of this expense outsourced to third-party app development agencies or freelancers.” Better-designed apps or those with higher functionality or more frequent use can cost even more to develop.
- Research shows that 47% of app development budgets were eaten up by external development agencies or freelancers. About 36% of companies spent less than $25,000 on these expenses, while 12% spent more than $500,000 in initial development.
- Additionally, the costs to be considered must also take into account that this estimate is just for the development of the app, not for the testing of it, or the updates it will need. There are multiple follow-up costs involved in running mobile health apps successfully, and these should be researched in-depth prior to estimating potential total costs.
Build Cash Flow Projections & Establish the Fiscal Year
- Setting up the initial launch budget and the first-year budget will allow for the estimate of cash flow projections, though these may be higher or lower than actual cash flow during the launch period and first year. Monitoring these projections throughout the year – and reducing expenses (or getting financing to cover expenses) – is key to ensuring the company stays solvent.
- Often, the first month of a company’s launch is considered the beginning of their fiscal year, since this is not restricted to January through December, but can be “any series of 12 months.” Establishing this as starting in the same month in which the company started is recommended best practice.
Ensure the Legal & Security Work is Done Before Launching
- As noted above, some products will require licensure or compliance with regulatory standards, and ensuring that these are not only known, but handled properly, is key. Experts recommend consulting a lawyer that specializes in healthtech products to ensure everything is done properly.
- Additionally, ensuring that the product is secure – and not only compliant with HIPAA, but also safe for patients to add their medical and financial data (if the product requires it). Cybersecurity risks for health data and associated patient financial information are high, especially for mobile apps, so consulting experts and using the best security systems is necessary.
Some Experts Recommend Hiring Marketing Professionals for Launch; Others Recommend Keeping It Cheap
- Since “marketing has become such a science that any advantage is beneficial,” experts recommend hiring an external team to help develop the launch and initial marketing materials. This is especially true for the initial branding of the company and/or product.
- That said, other experts recommend keeping the marketing budget as thin and tight as possible – between 0% - 10% of the total budget – especially in the first year.
- Notably, with all the marketing tips and best practices available through the internet, with even just a bit of marketing skill, every entrepreneur can handle most of their own initial marketing materials. Some items, like promo videos or giveaways, might require hiring paid help to craft, however.
Additional Helpful Information
- This highly-comprehensive article from Medium lists more than a hundred excellent sources for information on successfully launching a healthtech startup; it is likely to have an array of information useful to this new venture!